5 failures of financial planning and how to fix them

If you're wondering how you are supposed save for a distant retirement when you're struggling to pay off debt and make ends meet right now, you're not alone. I think financial planning has failed a lot of people. The promise that if you work hard, save 10 percent of your income, invest in your 401(k), have a diversified investment allocation and have an emergency fund everything will be fine has left a lot of people frustrated, discouraged and even a little angry.

Early on in my career, I did a financial plan for a client. I told him that all he had to do was to cut his cable bill, stop going on vacations, eliminate eating out, and bring a sack lunch to work every day, and he may have enough to retire in 40 years. I said this with a straight face. He looked at me like I was a moron, and I was. I was basically saying, "Sacrifice your life for the next 40 years, and then possibly you'll have enough money saved that you can retire." It wasn't my finest moment, but then again, traditional financial planning strategies didn't provide me with any real solutions for his situation.

At this point, I realized that when financial planning works, it works really well; but when it doesn't, it's a disaster. Here are five significant problems with traditional financial planning:

1. Sophie's New Choice. Should I skimp and save for the next 40 years so I can then squeak by in retirement, or should I enjoy life a little now and pray I hit the lottery when I retire? These are your options? The choice is as subtle as Vinny asking, "Would you like to get punched in the face or the gut?"

2. Age-related issues. During your prime years -- when you are the most vibrant and healthy -- you're working. But when you retire, your health can begin to deteriorate to the point where you can't do all of the things that you had planned. One retiree said, "Now that I've finally got the ability, I don't have the mobility."

3. Late start. The traditional approach just doesn't work effectively if you start too late. If you're 22 and diligently contributing 10 percent of your income to a 401(k), time is on your side. But if retirement is nearing and you don't have anything saved, you're not going to make it with traditional financial advice.

4. Retirement focused. Instead of looking at ways to improve life today, traditional financial planning focuses almost entirely on retirement, which could be 20, 30 or 40 years in the future. If you're working overtime just to pay this month's bills, you need solutions and strategies to live a richer life now, not 40 years from now.

5. Expense-only focus. Traditional financial planning focuses exclusively on just one side of the cash-flow equation -- expenses. What can you reduce, eliminate or postpone? There's nothing wrong with reducing excess and unnecessary spending, but that's where most traditional financial planners stop. You want to grow, expand, achieve and experience, but traditional rules tell you that you need to reduce, contract and limit your life.

Let's be clear: I'm a big proponent of the traditional approach. I am a certified financial planner and have a master's degree in financial services. I am the president of a financial planning firm and wrote a best-selling personal finance book based on the traditional approach. It can and does work. You should cover the basics and implement the traditional strategies to improve your finances; however, if you run your own numbers and realize traditional financial planning can't bridge the gap between where you are and where you want to be, you must do something more.

That "something more" is to increase your income to match your goals and dreams instead of shrinking your goals and dreams to fit your income. The solution is to shift your focus from just cutting expenses and saving money to learning how to make money by capitalizing on your free time. Whether you have two hours or just 20 minutes a night, you can boost your skills to increase your income at work, or find clever ways to capitalize on your passion. It's about leveraging your time to produce a bigger and better future for yourself. It's about shifting your focus. It's not just about finishing rich; it's about living rich. Call it financial planning 2.0.

(Robert Pagliarini is a CBS MoneyWatch columnist and the author of "The Other 8 Hours: Maximize Your Free Time to Create New Wealth & Purpose" and the national best-seller "The Six Day Financial Makeover." Visit YourOther8Hours.com.)